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Effective Strategies for Managing and Eliminating Debt

When you’re dealing with high-interest debt from credit cards and loans, paying it off as soon as possible can significantly improve your financial stability. However, this can be challenging, especially if you’re managing multiple balances, working with a tight budget, or unsure where to start. Here are some expert strategies to help you get out of debt faster.

1. Track Your Spending

Creating a budget is crucial for paying off debt quickly. A budget outlines how you’ll allocate funds for spending, saving, and debt repayment. According to Kassi Fetters, lead financial planner at Artica Financial Services, tracking your spending is essential for a successful budget. “Many families forget an important step to a successful budget—feedback,” Fetters says. To ensure your budget works, you need to monitor your actual spending against your planned spending. Consider using a spending tracker or budgeting app to categorize your expenses each time you make a transaction.

2. Set Debt Priorities

There are two main methods for prioritizing debt repayment: the debt snowball strategy and the debt avalanche strategy. The debt snowball method involves paying off debts in order of size, starting with the smallest balance. The debt avalanche method focuses on paying off balances with the highest interest rates first. “Both methods have advantages,” says Joseph Carpenito, a financial advisor at Materetsky Financial Group RIA. “The avalanche method may save you more money in the long run, but the debt snowball method can be really motivating and give you a sense of accomplishment as you pay off smaller debts first.” Choose the method that best motivates you.

3. Balance Saving and Debt Repayment

Balancing debt repayment with saving is key to long-term financial stability. “It’s important to prioritize debt repayment, but it’s equally important to have some savings set aside for emergencies and future expenses,” says Gabriel Lalonde, a certified financial planner with MDL Financial Group. Aim to save at least three to six months’ worth of essential expenses for emergencies. This can help you avoid taking on more debt in case of unexpected expenses and provide a sense of financial security.

4. Live Like a College Student

Kassi Fetters shares a unique strategy from her experience: live like a college student. “When my husband and I got married over 10 years ago, we had $49,000 in debt from credit cards, loans, and cars,” she explains. They paid it off within a year by being strict with their spending and downgrading their cars. “No eating out, no travel, and a lot of free outdoor activities,” she says. Her advice: be prepared to make temporary radical changes to your budget. “Anyone can live like a college kid again for a couple of years.”

5. Consider Consolidation

If you have good credit, you might qualify for a debt consolidation loan, which combines multiple balances into one new loan with a lower interest rate. “Consolidation can help simplify your finances and reduce your overall interest rates,” says Carpenito. However, consider all your options before rushing into consolidation, as it may not be the best solution for everyone.

6. Talk to Your Creditors

If you’re deeply in debt, consider talking to your creditors about a hardship plan. “Communicate with your creditors and be honest about your financial situation,” Carpenito advises. Many creditors are willing to work with you to find a repayment plan, which may include deferred payments, temporary reductions in interest, and reduced fees.

The Bottom Line

Getting out of debt isn’t easy, but there are resources available to help. Consider reaching out to a nonprofit credit counselor for free or low-cost assistance with budgeting or a debt management plan. For a long-term financial strategy, consult a financial planner who can help you manage your debt, save, and invest for a secure future.

For any mortgage-related needs, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey with confidence.

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